Lifting US Sanctions On Cuba Has Economic Perks But Isn't A Boon For Trade, Analysts Say

The Obama administration’s decision to lift restrictions on U.S.-Cuba relations Wednesday will drive a wave of American tourism and boost cash flows to the island. But the warming diplomatic ties won’t unleash a surge of imports and exports between the nations, given that Havana’s restrictive policies still make it tough for foreign and national companies to do business in Cuba, analysts say.

“We’re not looking at a large impact on Cuba,” said Christopher Sabatini, senior policy director at the Americas Society and Council of the Americas in New York. “For the U.S. economy, these changes will be minimal, too.”

President Barack Obama said Washington would loosen a series of restrictions on travel, remittances and exports to Cuba, though the broader embargo against Havana, enacted in 1962, remains in place. “These 50 years have shown that isolation has not worked,” the president said in a national address.

The U.S. opened up a handful of additional categories for travel to communist Cuba, allowing Americans to obtain licenses for business, family, religious, educational and humanitarian visits to the country. Sabatini said those changes could help double or triple American visits to Cuba, delivering a significant boost to the island’s $2.6 billion tourism industry. About 92,300 U.S. citizens visited Cuba in 2013, according to Cuban tourism data, amounting to 3.2 percent of total visits. The figure does not count the roughly 350,000 Cuban-Americans and U.S. diplomats that visit the island each year.

Those tourists will be allowed to bring back up to $400 in Cuban goodies, including up to $100 in alcohol and tobacco. That means Americans can purchase more Cuban rum and cigars on U.S. soil, though given the size of the limits, “we’re not looking at a massive sudden inflow of cohibas,” Sabatini said.

Remittance flows -- the money that Cuban-Americans send home -- will also jump under Obama’s policy shift. The White House increased limits on remittances to Cuban nationals from $500 to $2,000 per quarter. Cuban immigrants sent more than $3.5 billion to their families on the island last year, according to the Havana Consulting Group.

Even so, Cuba’s economy isn’t projected to grow by 3 percent next year, the level it needs to reach to pick up steam, Sabatini said. About 95 percent of the Cuban economy is still controlled by the state, a reality that presents significant challenges for the country’s currency and financial markets. “This change doesn’t address the multiple distortions and structural hurdles [in Cuba], in terms of economic growth,” he said. “Cuba has not become an investment paradise.”

Some components of the White House strategy will help U.S. agricultural producers, whose exports to Cuba are not covered by the embargo. Obama’s changes lift restrictions on ships that travel between U.S. and Cuban ports and streamlines the process for exchanging money, allowing American exporters to more efficiently ship corn, soy, wheat, poultry and pork to Cuba. U.S. food exports to Cuba totaled about $346 million in 2013, about 20 percent less than in 2012, according to trade data.

Other parts of Obama’s plan, however, will have a less discernible impact on the countries’ economies. While the White House eased export restrictions on telecommunications equipment and agricultural and construction goods, it’s not clear how Cuba would be able to pay for such imports, said José Azel, a senior scholar at the University of Miami’s Institute for Cuban and Cuban American Studies in Florida. He pointed out that Cuba pays in cash for U.S. agricultural imports and said few private financial institutions are willing to open credit lines to Havana, given the country’s closed economy.

Azel added that U.S. foreign direct investment in Cuba is unlikely to ratchet up in the near term. Foreign investors in Cuba must partner with the Cuban government -- not private companies -- as minority shareholders, giving American firms a small stake in an unequal partnership. The country also lacks key infrastructure needed to run an economy smoothly, such as wholesale suppliers and independent banks, experts say.

U.S. technology firms are similarly not expected to flood into Cuba soon, given that the government still tightly controls Cuban communications. While Cuban President Raúl Castro is authorizing increased Internet infrastructure across the island, the leader has not yet indicated that Cuba will improve freedoms of press and speech and reduce censorship.

“I really question whether the Cuban government will permit any real commerce in the area of information and telecommunications,” said Mark Lagon, the incoming president of Freedom House, a Washington-based human rights group. “I have doubts about whether [Obama’s changes] will yield more political expression in Cuba.”

Sebastian Arcos, associate director of the Cuban Research Institute at Florida International University, said he believed that any drastic improvements to the Cuban economy will require opening the country’s markets and shifting toward a more democratic society. “The Cubans believe that their control of the economy is as important as their control of the political system. They go together,” he said. For Cuba, “it’s not a matter of the U.S. embargo, it’s a matter of domestic policy.”